Landry v. Spitz

• Decision Date: 26 June 2007
• Docket Number: No. 26913.,26913.
• Citation: 102 Conn.App. 34,925 A.2d 334
• Court: Connecticut Court of Appeals
• Parties: John LANDRY v. Jerold B. SPITZ et al.

925 A.2d 334

102 Conn.App. 34

John LANDRY v. Jerold B. SPITZ et al.

No. 26913.

Appellate Court of Connecticut.

Argued November 28, 2006.

Decided June 26, 2007.

Mary E.R. Bartholic, with whom, on the brief, was Thomas W. Witherington, Hartford, for the appellants (defendants).

T.J. Donohue, Jr., with whom, on the brief, was Robert J. Killian, Jr., Hartford, for the appellee (plaintiff).

FLYNN, C.J., and ROGERS and STOUGHTON, Js.

ROGERS, J.

This case involves the interpretation of an oral settlement agreement reached in prior litigation. The defendants Lauren E. Spitz, individually and in her capacity as executor of the estate of Jerold B. Spitz,¹ and Physicians' Telephone Directory, Inc. (corporation), appeal from the judgment of the trial court concluding that they were jointly and severally liable to the plaintiff, John Landry, for damages resulting from the breach of that agreement. They claim on appeal that the court improperly (1) found a breach of the implied covenant of good faith and fair dealing that was not alleged in the complaint, (2) found that breach in the absence of an underlying contractual obligation and evidence of bad faith, (3) created a new contract term, (4) awarded damages based on a certain time period, (5) held the individual defendants liable for the obligations of Physicians' Telephone Directory, Inc., (6) applied the parol evidence rule and (7) permitted the plaintiff to submit evidence concerning his attorney's fees in a post-judgment proceeding. We agree with the defendants' fourth claim, which is that the court's damages calculation was improper, and their fifth claim, which is that the individual defendants improperly were held liable for an obligation of the corporate defendant, but we disagree with the defendants' remaining claims. Accordingly, we reverse the trial court's judgment as to Lauren E. Spitz, both individually and in her capacity as executor of the estate of Jerold B. Spitz. As to Physicians' Telephone Directory, Inc., we remand the case for a redetermination of damages but otherwise affirm the judgment of the trial court.

The following facts and procedural history are relevant to the appeal. The plaintiff formerly owned 25 percent of the stock of the corporation. Jerold B. Spitz and Lauren E. Spitz together owned a controlling interest in, and were officers of, the corporation, and three other individuals owned minority interests. In 1996, two of those individuals brought a shareholders' derivative action² against the Spitzes on the basis of their allegedly improper expenditures of corporate funds. A settlement was reached just prior to the commencement of trial, and the settlement agreement was described on the record and approved by the court, Aurigemma, J., on September 23, 1997.³ Although the plaintiff was not a party to the shareholders' derivative action, his interests were contemplated by the settlement agreement, and he was present with his counsel in court when it was approved.

The basic terms of the settlement agreement, in regard to the plaintiff, were found by the court in the present action to be as follows. "Under the agreement, the plaintiff agreed to do . . . two things. First, he transferred all of his rights of stock ownership, including his voting rights, to [Jerold B.] Spitz, thereby giving up all right to any say in how [the corporation] was run. Second, he gave [Jerold B.] Spitz an option, for a period of five years, to purchase his 25 percent interest in [the corporation] at a fixed price of $1 million. The five years began as of the date of the settlement agreement, September 23, 1997.

"In exchange, [the plaintiff] was to receive annual payments based on a specified percentage of gross sales [of the corporation]. He was to receive 6 percent of gross sales for pharmaceutical advertising, 3 percent of ancillary sales, 1.5 percent of `MD sales,' and 1.5 percent of `book sales.' The annual payments were made in arrears. [The corporation] was required to issue a certification of total sales in each category within thirty days of the end of each calendar year, and payment was issued thereafter. Payments were made only on funds actually received by [the corporation], with supplemental certifications issued for payments received by [the corporation] after the initial certification was issued."

The plaintiff received certifications and payments as contemplated by the agreement for the years 1997 through 2001.⁴ In August, 2002, Jerold B. Spitz exercised his option and purchased the plaintiff's stock for $1 million. For the year 2002, the plaintiff received a certification stating that year's gross sales figures but did not receive a payment. He also did not receive a supplemental payment for a portion of the 2001 sales for which the corporation was yet to receive payment at the time of the 2001 certification. The defendants took the position that the payments were akin to dividends, and, because the plaintiff no longer was a shareholder when the payments were due to be made under the settlement agreement, he was not entitled to them, even though he had been a shareholder for a portion of the year in which the sales underlying the payments had been made.

On April 12, 2004, the plaintiff brought a one count action against the defendants alleging breach of contract. In his complaint, he set forth the terms of the settlement agreement concerning the calculation of his annual payments and the existence and exercise of the stock purchase option. The plaintiff alleged generally that the defendants' failure to pay him anything for 2002 sales, and an additional amount based on 2001 sales for which payment was received subsequent to that year's certification, constituted breaches of the settlement agreement. The complaint did not include a claim alleging violation of the implied covenant of good faith and fair dealing.⁵ The plaintiff attached to the complaint as exhibits the September 23, 1997 transcript memorializing the settlement agreement and the 2002 certification of the corporation's gross sales.

A trial to the court was held in March, 2005. In an August 18, 2005 memorandum of decision, the court, Miller, J., concluded that the defendants, by withholding the payments that the plaintiff claimed were due, had breached the settlement agreement. It acknowledged that there was nothing in the agreement specifically addressing the question of whether the plaintiff was entitled to a payment in a year in which the option to purchase his stock was exercised and found further that that issue had not been discussed either during the prior litigation or subsequent to its settlement. The court reasoned, however, that the plaintiff had bargained away valuable rights in exchange for the annual payments he was to receive under the agreement. It thus found that the defendants' refusal to make those payments constituted a breach of the implied covenant of good faith and fair dealing that is part of every contract. According to the court, "[i]f the defendants were to prevail on their claim that exercise of the purchase option extinguished their obligation to pay over $240,000 to the plaintiff, the result would be that [the] plaintiff received nothing in exchange for the benefits [Jerold B.] Spitz enjoyed for the first eight and one-half months of 2002. This court finds that [the] defendants' attempt to achieve this result was a clear violation of their duty to deal with the plaintiff fairly and in good faith."

The court awarded the plaintiff total damages of $175,559.13. That amount is comprised of $24,150 remaining unpaid from 2001 gross sales and $151,409.13, which represents a prorated portion of the amount the plaintiff would have received pursuant to the settlement agreement had he been a shareholder for the entire year of 2002. The court rendered judgment in the total amount against all of the defendants, jointly and severally. This appeal followed.

I

The defendants claim first that the court improperly decided the case on the basis of the implied covenant of good faith and fair dealing because the plaintiff did not allege a breach of that covenant in his complaint or litigate the issue of such a breach at trial. According to the defendants, the first time the plaintiff raised a claim that the covenant had been breached was in his posttrial brief, which resulted in prejudice to the defendants. We are not persuaded.

"The purpose of the complaint is to limit the issues to be decided at the trial of a case and is calculated to prevent surprise." (Internal quotation marks omitted.) Lyons v. Nichols, 63 Conn.App. 761, 764, 778 A.2d 246, cert. denied, 258 Conn. 906, 782 A.2d 1244 (2001). A complaint should "fairly put the defendant on notice of the claims against him." (Internal quotation marks omitted.) Id. Thus, a plaintiff during trial cannot vary the factual aspect of his case in such a way that it alters the basic nature of the cause of action alleged in his complaint. See Willow Springs Condominium Assn., Inc. v. Seventh BRT Development Corp., 245 Conn. 1, 63, 717 A.2d 77 (1998). "In other words, [a] plaintiff may not allege one cause of action and recover upon another." (Internal quotation marks omitted.) Id.

The defendants' claim requires us to interpret the allegations of the plaintiff's complaint to determine what it fairly alleges and to compare those allegations with the court's judgment, as informed by the trial record. The interpretation of pleadings presents a question of law over which our review is plenary. Maloney v. PCRE, LLC, 68 Conn.App. 727, 746, 793 A.2d 1118 (2002).

The defendants argue that the plaintiff alleged only breach of contract in his complaint and that he raised the applicability of the implied covenant of good faith and fair dealing for the first time in his posttrial brief. According to the defendants, to establish a breach of the implied covenant of good faith and fair dealing, a party must prove, inter alia, bad...